Norwegian­Investment­Fund­for­Developing­Countries 2016 CONTENTS CONTENTS 20 years of investing for development 3 Message from the Chief Executive Officer 4 Development trends 1997–2017 6 20 YEARS OF A brief history of Norfund 8 Organisation 13 Board of directors 14 INVESTING FOR DEVELOPMENT Norfund – an active, strategic, 08 minority investor 16 Strategic partnerships and investment IN 1997, NORFUND – the Norwegian Investment Fund for Developing The fund’s investments have contributed directly to the development platforms 25 Countries – was established by the Norwegian Parliament. The purpose of sustain able businesses, job generation, tax­payments and to increased was to contribute to building sustainable commercial businesses in access to clean energy, risk capital and financial services in poor countries. Investing in underserved markets 26 developing countries. With Norfund, a new chapter was added to the Today, 770 companies with more than 276,000 employees are included 37 Why go beyond aid and concessional Norwegian develop ment assistance policy; profitable industry and the Norfund portfolio. commerce was seen as a backbone of sustainable poverty alleviation. borrowing 28 Norfund’s activities are based on the principles of Norway’s develop­ Portfolio and results 30 Norfund’s mandate is to be additional and catalytic. This means that ment cooperation policy. The graph below shows how Norfund through Norfund shall provide additional capital to poor countries beyond what good returns and annual capital allocations from Norway’s budget for Portfolio 32 would happen in the market place, and attract additional capital from development assistance has grown to be a significant investor in our 25 Results 34 private sources. For twenty years, Norfund has provided equity, other markets. risk capital, and loans to companies in countries where the need for Development effects 36 capital is vast, and to industry sectors particularly important to develop­ Gender equality 38 ment. Norfund always invests jointly with partners, both Norwegian and non­Norwegian. 40 Exited companies 2016 39 Business areas 40 Clean Energy 42 18 000 Financial Institutions 48 16 000 Food and Agribusiness 54 14 000 SME funds 60 12 000 Key figures 66 10 000 MNOK 8 000 6 000 Head office Phone: E-mail: Design & production NORFUND Oslo Norway +47 22 01 93 93 [email protected] Dinamo 4 000 Address: Fax: Repro REPORT ON Internet: Fridtjof Nansens plass 4, +47 22 01 93 94 Dinamo www.norfund.no 2 000 OPERATIONS 0160 Oslo, Norway Print 2016 0 Merkur Grafisk 1997 19981999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Accumulated allocated capital Allocated capital this year Retained earnings Committed portfolio 2 NORFUND REPORT ON OPERATIONS 2016 NORFUND REPORT ON OPERATIONS 2016 3 MESSAGE FROM THE MANAGING DIRECTOR MESSAGE FROM THE MANAGING DIRECTOR MAJOR INVESTMENTS IN 2016 A MESSAGE FROM Donor countries have scaled­up their capital allocations to 20 YEARS OF DFIs. Globally, total amount invested by all DFIs is now In 2016, Norfund’s largest investment was in the new equivalent to half of all official development assistance company Arise, formed through a partnership with (ODA). Norwegian governments have been a pioneer in Rabobank and FMO (the Dutch DFI). The purpose of this this regard, every year since inception increasing Norfund’s new investment company is to build a vibrant and solid INVESTING FOR capital base. The core capital injected so far is NOK 12.7 banking sector in Sub­Saharan Africa, and by doing so, billion. No dividends have ever been paid. Norfund has increase access to capital for SMEs and promote financial accumulated NOK 3.7 billion in profit, and on top of that, inclusion. DEVELOPMENT we believe NOK 4.3 billion have been created in values that Another milestone occurred in 2016 when IFU (the KJELL will surface when projects are exited. Danish DFI) joined the Norwegian Microfinance Initiative DFIs, such as Norfund, are thereby different to all other (NMI). With IFU on board, the company was renamed ROLAND The Sustainable Development Goals, aid, the money we invest can be redeployed in new projects, Nordic Micro finance Initiative and aims to become the again and again. leading Nordic investor in microfinance. potential setbacks in trade and A third milestone was achieved when Scatec Solar and globalisation combined with more FROM BILLIONS TO TRILLIONS … OR TO MILLIONS? KLP Norfund Invest AS signed a Power Purchase Agree­ risk-averse western investors have The need to increase capital flow to poor countries, “from ment that secured the sale of solar power to the state­owned Chief Executive Officer Billions to Trillions”, was the core message of the Third utility company, Electricidade de Mozambique (EDM). created a world with increasing need International Conference on Financing for Development Being able to build infrastructure in Mozambique in the for develop ment finance institutions. held in Addis Ababa in 2015. It reflected the common under­ present political and economic environment is unique. The Thus, twenty years after its inception, standing that the UN’s Sustainable Development Goals will planned 40 MW Mocuba solar power plant will be the first only be achieved if private investors make substantial invest­ of its kind in the country. Norfund’s role of supporting economic ments. The global community needs to find ways to spend growth and development is more “billions” in aid to unleash “trillions” in private investments. A NORFUND BUZZ WORD: ADDITIONALITY important than ever. However, we are not seeing this happening at scale. In Our mandate is to be additional by supplying capital and fact, capital flow to poor countries is declining and Western competence that is otherwise unavailable in poor countries banks are leaving Sub­Saharan Africa. The previous growth and difficult sectors. Ideas about development have changed. In the 1960s and of Foreign Direct Investments (FDI) to developing countries Last year, Norfund invested 86 percent of our capital in 1970s, transferring capital, building infrastructure, and pro­ has stopped. This is a paradox; Poor countries are desperately developing countries that are ranked as ‘difficult’ places to do viding technical expertise were seen as ways to kick­start short of capital, and can offer high interest rates and oppor­ business. By contrast, according to the World Bank, only 11 growth. In the 1980s and 1990s, development was focused tunities for profitable investments. Yet, private investors are percent of foreign direct investments (FDI) were deployed more on how best to introduce Western­style institutions turning back to western markets which are over­liquid and to such countries. (see page 26). and values, and leave infrastructure and jobs to the market. where interest rates are close to, or even below, zero. The At a time when private investors are more reluctant to In 1995, the Norwegian North­South Aid Commission UK’s Brexit choice and Trump’s presidential victory in the invest in poor countries, the need for Norfund’s invest­ (NOU 1995:5) argued that Norwegian development aid USA are signs that globalism may decline further. ments is growing. Norfund is an active, strategic minority policy needed a new tool to support productive sectors. provider of equity in developing countries. We are willing The Norfund Act was subsequently approved by the IS THE RISK TOO HIGH – IN NORWAY? to take high risks and pave the way for private investors. Norwegian parliament in 1997. In Norway, the reluctance to invest in poor countries may be We will help turning the tide of private capital back to poor Since then, through annual capital allocations and aggravated by the high risk of reputational damage when for­ countries by proving that it is possible and profitable, and by good developmental and financial returns, Norfund has eign investments fail. Zero­tolerance for corruption is vital, buying down their risk as a partner with capital and skills. become a significant Development Finance Institution but zero tolerance for failures or wrong doing is damaging! (DFI) in emerging markets. Companies that are brave enough to invest in poor countries must be given the opportunity to learn from their THE NEW AID ARCHITECTURE mistakes and experiences. If we are to succeed in raising Development finance has evolved dramatically over the investment “from Billions to Trillions”, then the public and last decade. Policymakers have increasingly recognised NGOs must support companies that are willing to invest in Kjell Roland the need for jobs, tax revenues and exports that earn hard developing countries. And, like in traditional aid programs, Chief Executive Officer currency. They understand that private sector and eco­ accept that implementation is difficult and mistakes may nomic growth are preconditions for sustainable poverty happen. Trying to fight poverty is better than simply keep­ alleviation. ing our investment focus at home. 4 NORFUND REPORT ON OPERATIONS 2016 NORFUND REPORT ON OPERATIONS 2016 5 DEVELOPMENT TRENDS 1997-2017 DEVELOPMENT TRENDS 1997-2017 SURGE IN FOREIGN DIRECT INVESTMENT (FDI), BUT AFRICA LAGS BEHIND DEVELOPMENT TRENDS 1997–2017 800 700 600 500 66billion­USD­­ 400 in­2014 THE NUMBER OF PEOPLE LIVING IN EXTREME POVERTY HAS DROPPED BY 50 % 300 200 1800 Billions USD (current) 100 One of the UN’s eight Millennium 0 1600 Development Goals was to halve the 1997 2011 2014 2012 2013 1999 2001 2010 2015 1998 2007 2002 2003 2004 2006 2009 2000 2005 number of people living in extreme poverty 2008 1400 by 2015. This goal was achieved before 1200 the deadline. Poverty in Asia dropped Foreign direct investment (FDI) to developing countries substantially, but the number of people 1000 Net official development assistance (ODA) to developing countries living in extreme poverty in Sub-Saharan Foreign direct investment (FDI) to Sub-Saharan Africa 800 Africa has remained high. 12billion­USD­­ 600 Access to capital is crucial to economic growth.